AUD/USD Fights to Have Relevant Traction, It Consolidates Over Mid-0.6900 Zones

Favorable Trades Minimize Losses

The AUD/USD currency pair saw a favorable two-way movement of prices through the initial half of the early European session on Tuesday. At the time of this report, the pair was observed to be trading in a neutral zone, right over the mid-0.6900 zones.

AUD/USD price chart. Source TradingView

After dropping to the lowest point it had been since last two year’s July, the AUD/USD currency pair executed a strong intraday rebound from the 0.6900 benchmarks. However, the pair’s rebound did not have any form of follow-up.

It now looks like the US Dollar has entered into a phase of bullish consolidation as there is the emergence of soft tones around the American Treasury bond yields. Aside from that, a strong rebound in the stock market undermined the safe-haven US Dollar much more but it gave a measure of support to the Australian Dollar which is widely seen as a risky asset.

That said, the possibility of the Federal Reserve implementing a more aggressive monetary policy helped to limit further losses for the US Dollar. The financial market is more convinced that the Federal Reserve needs to embark on more drastic moves to effectively fight the escalating inflation rates. The market has subsequently priced in up to 200 basis points in interest rates to be further introduced by the Federal Reserve.

Slow Global Economy Raises Fears

Furthermore, increasing fears in the market concerning the slow pace of global economic growth has put a lid on more gains that the AUD/USD pair might be gunning for. The crisis in the global supply chain system as a result of the COVID situation in China, as well as the increasing cost of food and oil as a result of the war in Ukraine, are fueling fears of inflation.

Along with the market’s anticipation of a fast interest rate increase in the United States, these have raised worries over the possibility of an economic recession. Therefore, the market’s attention would be fixed on the upcoming consumer inflation index report for the United States, scheduled to be published on Wednesday. The result might be crucial in influencing the Federal Reserve’s policy resolution and give a new momentum to the AUD/USD currency pair.

While that is in the offing, bond yields in the United States are positioned to keep playing a significant role in pushing demands for the US Dollar. This is with the fact that there are no significant releases that move the market yet. Traders could then be taking a cue from the sentiment in the general market to take some near-term opportunities that might be present around the AUD/USD currency pair.

Nonetheless, the current bias is shifted in favor of bears and it supports possibilities for prolonging the latest bearish trend. The said bearish trend has been around for over a month.